With its efforts to control costs and achieve breakeven, Zomato is increasing the commission it charges its restaurant partners, while reducing the fee it pays its delivery partners. As a result of the latter, Zomato’s delivery partners in Delhi-NCR have been on strike for more than a week.
ICICI Securities reports that this has resulted in the temporary shutdown of nearly 25% of Blinkit’s total dark stores, resulting in a revenue loss of nearly 1%.
Zomato has rolled out a new fixed-cum-variable structure of ₹15 per delivery with an additional incentive based on the distance travelled, replacing the old fixed-fee structure of ₹25 per delivery. According to its delivery partners, this has not gone over well.
In an exchange filing today, the company clarified that some stores were closed for a few days to ensure the safety of employees and delivery partners. However, most stores are now open again.
There have been strikes before, but this time is different-Zomato
Zomato and Swiggy are not strangers to restaurant and delivery partner strikes, but this time, the strike in Delhi-NCR has attracted both national and political attention.
At ICICI Securities, analysts believe this needs to be resolved as soon as possible through “clearer communication of expected earnings changes for delivery executives or concessions on delivery fees.”
In the March quarter, analysts expect gross order value to remain subdued, with volume improvements expected to drive growth, not value. Zomato is likely to boost its topline and offset the impact of free delivery to its Zomato Gold subscribers by increasing take rates from restaurants and increasing advertising charges.
According to JM Financial analysts, quick commerce offers a much bigger total addressable market and the current penetration levels are significantly lower than food delivery.
The quick commerce market in India is currently valued at just $5.5 billion, which is a fraction of the estimated addressable market of $45 billion. There is plenty of room for Zomato and its rival Swiggy to grow.
Breakeven is expected by FY25
Analysts expect Zomato to achieve breakeven by FY25, despite the company’s management’s timeline for Q2 FY24.
Zomato can grow its overall business faster with the Blinkit acquisition at a time when its core food delivery business is expected to remain subdued, but it also carries with it additional risks. Brokers also point to the high attrition levels among senior management.
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